calculate wacc?

Question

If the preffered stock pays a dividend of $2 per share, the beta of the stock is .08, the market risk premium is 10%,the risk-free rate is 6%, and the firm's tax rate is 40% what is wacc?

if not calculate of wacc, is calculate CAPM, sorry.
Book Value Balance Sheet In millions is
ASSETS
cash & short term securities $1.0
acc. receivable 3.0
inventories 7.0
plant and equipment 21.0
total $32.0
LIABILITIES
bonds,coupon =8% paid annually $10.0
(maturity 10yrs,current yield to maturiy =9%
Preferred stock(par value $20per share) 2.0
Common stock (par value $.10) 0.1
additional paid in stockholders capital 9.9
Retained earnings 10.0
total $32.0

Answer 1

With the dividends, if you know the market price of the share, then the cost of equity equals (2/Market Price) + Growth Rate

Otherwise, cost of equity can also be calculated using the CAPM model:

Cost of Equity = Rf + Beta(Rm-Rf) = .06+.08(.1) = .068

I'm assuming by market risk premium, you mean excess over the risk free. Otherwise, the answer is .0632 because Beta*(Rm-Rf) becomes .0032.

Cost of Debt = Rd

For cost of debt, you need the Rd, which is how much the company is paying for debt.

Then, WACC is (Cost of Equity) * (Market value of firm's equity) + (Cost of Debt) * (1- Tax Rate) * (Market value of firm's debt)

I have a feeling you're missing some information. To answer this question properly, you need more info: Market price of their preferred stock, how much they are paying for debt, and the amount of equity and debt.

If there is no debt, then it is just (Cost of Equity * Market Value of Equity) they want

Answer 2

It is difficult to calculate wacc from the information given, since the composition of the financial structure is not given instead you have provided the pershare data from which the composition is difficult to figure out. Tell what percent of liabilities is preferred say p, what percent is common stock say s and what percent is debt say d. If you know that then,
wacc= pxKp+sxKs+dxKd where Kp is the cost of preferred, Ks is the cost of equity to be got from capm and Kd the cost of debt given as 9% which looks like after taxes.

Answer 3

For what period are you trying to determine WACC? If you want the WACC over the 3 yrs, first calculate WACC for each year. Then get the WACC for the 3 yrs. And no, you are not putting too much thought into it.